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Mortgage Mistakes to Avoid

For most of us, a home is the most expensive purchase we will ever make and consequently, the biggest debt we will ever carry. Therefore, it is imperative that you make the best decisions for you and your family before and during the loan process. Mistakes can cause you to pay more than is necessary, stop your loan from closing and potentially put you into foreclosure or bankruptcy. However, with a mortgage company like Superior MCI helping you make the right decisions, you can get a home loan with great interest rates, low fees and fixed monthly payments you can afford. Some of the most important questions to consider are:

  • Should I Get a Fixed Rate Loan?  The common wisdom is that unless you’re planning to move within five to seven years, a fixed rate loan is a better idea. An adjustable rate mortgage (ARM) may give you a lower payment now, but will reset at some point to a higher rate. It may be difficult to refinance or afford new payments once the rates increase. The housing market may also make it difficult to sell. A mortgage amortization schedule will help you see the total amount of principal and interest you will pay over the life of the loan.
  • Should I Let the Bank Tell Me What I Can Afford?  Banks earn profits for their shareholders by maximizing their earnings. They are not concerned about whether you overextend yourself. Banks usually qualify you for a loan based on your pretax income (gross) income without accounting for all your monthly expenses.
  • Should I Check and Fix My Credit?   Checking your credit with the three major credit bureaus, Experian, Equifax and TransUnion, is free when using annualcreditreport.com. Mistakes are common and can lead to higher rates.
  • Is a Loan Final Before Closing?  The answer is an emphatic no. Accordingly, during this time, avoid quitting your job, don’t open new credit cards, don’t make other large purchases and don’t miss any deadlines for returning loan paperwork.
  • Should I Ignore the APR?  Some lenders may advertise lower interest rates but make up for them with higher fees. You should compare annual percentage rates between mortgage offers to determine which one really costs the least. APR includes the lender’s fees and shows the loan’s true cost.
  • Should I Carry Two Mortgages?  If you are moving from one house to another, you may be tempted to buy the new one before selling your current home. However, an unsold home with a mortgage may mean carrying two loans because it is generally easier to buy a new home than sell your current home.
  • How Much Money Should I Put Down?  If you put little to nothing down, such as 3.5% with an FHA loan or 5% with a conventional loan, you may require private mortgage insurance (PMI), which is usually $20 to $50 per month per $100,000 borrowed.
  • Should I Get Pre-Approved for the Loan?  Talk to at least three lenders to get pre-approved. It does not cost anything and allows you to make a competitive bid.

At Superior Mortgage Company, Inc., our expertise in residential and commercial loans allows us to provide the best products and services available. If you are purchasing, refinancing or in need of a home equity loan, regardless of any credit problems, we can help. Contact the company that can answer all your questions. Call us at 845-883-8200.

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Using a Cash-Out Refinance to Buy a Home

Millions of American homeowners are thinking about refinancing their home in today’s market because real estate equity has greatly increased in recent years. Homeowner equity went from $6 trillion in 2009 to $15 trillion in 2018. This equity can be converted into financing for school, business or the purchase of a second home or investment property. The ability to do so depends on several factors, including:

  • The amount of your home equity
  • Your credit rating

If you want to buy and then sell or refinance another home, a bridge loan may be best. You can also choose a HELOC or home equity line of credit. Determining how much equity you have seems simple if you subtract what you originally paid for the home and what it is worth now. However, many lenders allow cash-out refinancing equal to 80% of your equity. If the property value is $275,000, they will subtract 20%, leaving approximately $220,000. The money will go toward repaying the existing loan of $85,000, for example, and the balance of $135,000 is available for the borrower. A VA cash-out mortgage allows borrowers to refinance up to 100% of their equity. All programs come with various charges and insurance costs so speaking with a mortgage professional, like the ones at Superior MCI, can help you to avoid some of these extra charges.

With cash-out refinancing or a HELOC, you generally cannot use the funds to buy another home you want to move into quickly because cash-out refinancing and HELOCs usually have a clause that says you expect to remain in your home at least one year. If this rule is violated, the lender may call in the loan and demand immediate repayment. HELOCs have other drawbacks such as an interest rate that is likely to be adjustable and not fixed. The interest rate is usually higher than a first mortgage, depending upon your credit, the amount borrowed, location and equity. You must also review the HELOC balances to avoid heavy monthly costs. HELOC’S have two phases:

  • Drawing Phase:  You can draw money out, put money back in and make interest payments on the balance.
  • Repayment Period:  You cannot draw money out. You must repay the balance over the remaining term of the loan, possibly incurring large monthly repayment costs.

A “bridge” loan is designed to help you move from one residence to another. It is intended to be short-term financing that may be for just a few months and there are no monthly payments. In a bridge loan, the interest rate may be high and there may be a lot of up-front fees. However, if you want to purchase a replacement home, after selling your current residence, the bridge loan is paid off at closing.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of any credit problems, we can help you. Contact the company that can answer all your questions. Call us at 845-883-8200. 

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When to Consider Refinancing Your Home

A home refinance could be a very smart move or a very big mistake. Refinancing may keep more money in your account and less in the bank’s. Refinancing could bail you out of an emergency or let you retire earlier. But it only works when you take out the right loan for the right reasons. The right reasons for refinancing include:

  • Better interest rates are currently available.
  • You can pay off your mortgage faster.
  • Your ARM rate could go higher unless you lock in a fixed rate.
  • Getting a government loan could make your property easier to sell in a few years.
  • You can increase the home’s value by making home improvements.
  • You can keep the interest rate low.

Wanting to refinance to save money is an easy decision. However, refinancing because you want a new car, you’re going to Las Vegas and need cash, your son wants another postgraduate degree, etc. are not good reasons for refinancing. Most financial experts will agree that long-term loans, such as mortgages, should not be used for short-term pleasures.

First determine how long you plan to keep your house and if you’re able to save money during this time. Ask the lender about no-cost refinancing. This type of refinancing offers a higher interest rate in return for the lender covering the financing costs. If you are planning to sell your house in a few years, you might consider a 3/1 ARM. You could trade your 30-year fixed rate at 4.0 %, for example, for a 3/1 ARM at 2.5 %. A mortgage calculator can help you when thinking about a mortgage refinance. You can also contact Superior MCI to get the best offer to save you the most money. If you have been paying your home mortgage for many years, you can shorten the payoff period and possibly get a lower interest rate. For example, if you had a $300,000 mortgage at 4.5 % for the last eight years, your balance may be about $254,451, making your principal and interest payment about $1,520.  If you refinance your loan to a 15-year mortgage and your rate lowers to 3.25 %, your payment may increase to $1,788 but your mortgage will be repaid eight years sooner. That is about $145,000 in payments you won’t have to make.

As long as you understand the true cost of refinancing, make an informed decision, and create a budget and plan for repayment, you can refinance your home to pay off a higher interest debt, finish college or take care of a family emergency. Sometimes in life, you need financial breathing room. Superior Mortgage can help you with the math and make sure that you are making the best decision for you and your family.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of credit problems, we can help you. Contact the company that can answer all your questions and give you the information you need to make the best decision. Call us at 845-883-8200. 

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Residential vs. Commercial Real Estate Loans

If you are a property owner that is thinking about purchasing an apartment building, you are not alone. The US has generally shifted from homeownership to ‘rentership’ so the interest in multifamily investment has increased.

Commercial real estate generates income. Residential real estate is an owned residence. However, some rental properties that produce income are financed by a residential loan. To explain, rental properties with five units and up are financed by commercial loans. Real estate brokers refer to these properties as multifamilies. Rentals with five units and under can be financed through a residential loan. However, some brokers refer to a two-family property as a multifamily which can sometimes lead to confusion. The difference is how a loan is sized during the underwriting process.

Commercial loans are sized and underwritten based on an asset’s projected net operating income (NOI). Residential loans are underwritten based on the credit worthiness and income history of the person purchasing the property. Therefore, in commercial loans, eligibility has much to do with property performance, and lenders are looking for borrowers who can answer yes to:

  • Has the asset been at least 90% occupied for the past 90 days?
  • Does the borrower have a net worth equal to or greater than the loan request?
  • Does the borrower have a minimum of nine months of principal and interest in cash on hand?
  • Does the borrower have a history of bankruptcy, foreclosure, deed in lieu or are they currently involved in a lawsuit?

None of these questions ask about a borrower’s employment history or for pay stubs. Commercial borrowers are expected to have good credit and significant net worth.

There are prepayment differences between commercial and residential loans. Commercial or multifamily borrowers should consider prepayment penalties, which are fees incurred from paying off your mortgage before it reaches maturation. Prepayment fees are not common for a home mortgage. If you take out a loan for your primary residence and suddenly come into a large inheritance, you will be able to pay off the balance of the loan without incurring any fees. If the lender issues a loan collateralized by a multifamily or commercial asset, they expect a set amount of interest revenue. If you pay off the mortgage early, the lender will need to get the interest revenue through a fee to satisfy their investors. Fannie Mae and Freddie Mac commercial loans are secured to retail and institutional investors relying on the interest income set forth in the loan. To recoup lost revenue due to an early pay-off, the loan terms frequently include a declining prepayment penalty or yield maintenance fee structure.

At Superior Mortgage Company, Inc., we specialize in residential and commercial loans and provide the best products and services available. Whether you are purchasing, refinancing or in need of a home equity loan, and regardless of any credit problems, we can help you. Contact the company that can answer all your questions. Call us at 845-883-8200. 

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